1. Non-Medical Professional Liability Denise Olson, FCAS, MAAA CNA Pro

2. Non-Medical Professional Liability n Errors and Omissions / Malpractice n Usually involves breach of contract, misrepresentation, negligence fraud n Damages - typically economic, no punitives n Examples: Lawyers, Accountants, Architects & Engineers, Design Professionals, Actuaries, Real Estate Agents

3. Non-Medical Professional Liability n Coverage is typically claims made l Claims are covered in the year first reported l Cleaner due to coverage issues - when did the cause accrue? l Shortens the tail considerably n Expenses can be inside or outside the limit n Defense of claims is a primary coverage benefit

4. Non-Medical Professional Liability - Considerations n Coverage provisions n Book profile n Limit and Deductible profiles n How does the Limit apply (excess of deductible)

5. Non-Medical Professional Liability - Other Unique Features n Classifications - Not all lawyers are equal n Exposure Base - What is appropriate can vary n Claims handling is a key consideration n Very little industry data available n State variations can be important

6. Non-Medical Professional Liability - Pricing Issues n Extended Reporting Period n Step Rating n Retroactive Dates

7. Step Rate n Definition & Purpose n Graphical Representation of Area covered in each step n Determination of Proper Step Rates n Other Uses for Analysis

8. Definition & Purpose n Step is the level of maturity of the policy l Step 1 (sometimes called Step 0) is the first year after retroactive date l Retroactive date is set for date after which prior acts will be covered n Adjusts for fact that policies with more recent retroactive dates will have fewer and possibly less severe claims

10. Step Rate Graph n Amount covered by each policy increases with each year after the retroactive date n Rates need adjustment to account for increasing exposure

11. Evaluation of Step Rate Factors n Two main methods of handling l Ultimate incurred loss ratio analysis by Step l Step Rate Relativity Analysis based on losses only

12. Ultimate Incurred Loss Ratio n Separate premium data by step n Split losses by applicable policies n Adjust for varying degrees of deductible and limit (basic limits) and mix of business n Use loss ratio differentials to determine if current factors are appropriate

13. Ultimate Incurred Loss Ratio Advantages n Occurrence dates are irrelevant n If only relativity adjustments are needed, this is simpler n Data quality issues are less likely to occur Disadvantages n Step Rate calculation changes can’t be tested n Need to match losses by policies n Low volume of data at lower steps usually

14. Loss Only Method n Separate incurred loss data by lag n Determine % of incurred losses by step n Adjust for varying deductibles, limits, and sizes of firm n Develop to ultimate

15. Loss Only Method Advantages n Premium data not needed n Can use for ERP analysis n Can use to develop step rates without experience Disadvantages n Mix of business may still be an issue n Occurrence dates are needed and must be fairly accurate n More complex

16. Loss Only Method - Example n Used Lawyers E&O Data n Current Rating Method l Average Number of Years Experience - capped l Same whether full prior acts or not l Base Rate multiplied by number of attorneys n New Approach l Each Attorney rated individually l Base rates then added

17. Loss Only Method - Example n Pull all available data n Check data for accuracy of occurrence dates n Separate by Accident Year and Lag n Make adjustments for differences between incurred lag pattern and ultimate lag pattern n Select step factors

18. Loss Only Method - Example n Data errors: Sampling performed n Approximately 30% of all claims are miscoded by occurrence date n Assumed that most errors set claims made date as occurrence date n Adjusted Step 1 selection to reflect data errors

19. Loss Only Method - Example Adjusting for Ultimate Values n Claims with larger lags tend to have higher ultimate claim amounts due to delay n Due to large amounts - newer years will have less loss in the higher steps n Development is not as great as straight loss analysis

20. Loss Only Method - Other uses n Can use results for Extended Reporting Period pricing n Use losses by lag expected n Discount to current n Treated like an occurrence policy without new claims possible